Don't freak about the economy - The day the world didn't end - European crisis returns to fore

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M.M. MINUTE I: DON’T FREAK ABOUT THE ECONOMY - HFE’s chief U.S. economist Ian Shepherdson tells M.M. everyone is far too worried about the U.S. heading into a double-dip recession and notes that the dismal June jobs number was most likely a statistical anomaly that will not be repeated in the July number out on Friday. He also argues that the debt deal spending cuts will have very little short term impact, especially if Congress extends the payroll tax cut. He also favors extending unemployment benefits but for moral not economic reasons.

Shepherdson: “We are clearly not going into a double-dip. Jobless claims just dipped below 400,000 ... If it were not for the ISM [manufacturing] number I would not even be that concerned. But a lot of that was debt ceiling reaction. If you are thinking of a big capital expenditure and the idiots in Washington can’t seem to do the right thing maybe you hold your cash, if only for a few weeks. The main reason things slowed was rising energy prices. And now that has been absorbed and the debt ceiling crisis is over.” ...

“Overall I think the third quarter will be a little better and the fourth quarter should be a lot better. ... The June jobs number was just SHREDDED BY SEASONAL ADJUSTMENTS. ... And a lot of people on Wall Street can’t figure this out because the seasonal adjustments are kind of a black box. But I’ve confirmed them with BLS. ... I would not be surprised to see July private payrolls come in PLUS-150,000 and a headline number of 120,000.”

M.M. MINUTE II: DON’T FREAK ABOUT MARKETS - Cumberland Advisors’ David Kotok tells M.M. that Tuesday’s big tank was in part a misinterpretation by stock market investors of what happened in the bond market.

Kotok: “You’ve had a series of statistics that have been ugly and sentiment was damaged by the debt ceiling debate. ... But in the end the system worked. The outcome was no default when at some point the risk of one seemed 50/50. ... And then you had a monster rally in Treasuries because there was no default. ... There were HUGE SHORT POSITIONS world-wide in Treasury notes and bonds established through derivatives and you had a short-covering rally. The robustness of it tells you how big the short was. ...

“The equity market MISUNDERSTOOD THIS as a flight to safety which makes no sense. How do you have a flight to safety if your credit rating is still under attack? ... We had a supply chain shock from Japan that was very substantial and impacted manufacturing world-wide. We have now seen the worst of it and it is being cured every day. ...

“The recovery will start to reappear in Q3 and more strongly in Q4, which could see growth of 3 percent or more. It will be rocky for a while but we are coming back from a deep hole. The market is discounting a return to recession that SIMPLY IS NOT COMING.”

OVERNIGHT MARKETS - Asia down about 2 percent. Europe opened lower. U.S. futures up slightly. http://bloom.bg/djxZCA

WEDNESDAY FUNNIES - Hard to believe we haven’t yet linked to “Havoc on the Hill’s” take on the debt ceiling drama. But it’s classic stuff if you haven’t seen it: http://bit.ly/qwEVSb

GEITHNER ON DEBT-DEAL - Treasury Secretary Tim Geithner in a WP op-ed: “This agreement is the beginning of restoring fiscal sustainability. It is a substantial down payment, but not the end of the debate. The government’s ability to make smart, long-term budget choices has long been broken. This gives us a chance to fix it. ...

“And by locking in long-term savings, Congress will have more room in the fall to pass additional short-term measures to strengthen the economy — such as extending the payroll tax cut ... extending unemployment benefits; and financing infrastructure investments. ... It is not enough for Congress to have prevented a disaster it brought on itself. Lawmakers should return in September prepared to act to strengthen the economy and get more Americans back to work.” http://wapo.st/osKohs

MARKETS ASSUME S&P DOWNGRADE? - It seems one cannot turn around without an S&P employee somewhere in the world spouting off on U.S. debt. No different over night. Reuters/Singapore: “A senior official at rating agency Standard & Poor's said on Wednesday that global markets have already discounted a possible U.S. ratings downgrade ... ‘Market is to some extent already discounted to the potential risk of a U.S. downgrade,’ Takahira Ogawa, director of sovereign ratings at S&P, told Reuters.” http://reut.rs/pU1lpw

M.M. PRESENTS: THE DAY THE WORLD DIDN’T END - M.M. (with some anonymous assistance) imagines what some debt ceiling players are doing after the nonpocalypse.

TIM GEITHNER: Broke out the whiskey Treasury confiscated when it ran the ATF
and partied with President Obama, VP Joe Biden and Gene Sperling in the cash room while outsourcing the above op-ed to China. For kicks they all re-read Geithner’s op-ed from Aug. 3rd last year: “Welcome to the Recovery.” (Sorry, Mr. Secretary, couldn’t resist.) http://nyti.ms/pbDxEp

JOHN CHAMBERS/DAVID BEERS of Standard & Poor’s: Still in captivity in the White House basement under the close eyes of Seal Team Six.

ROB NICHOLS/BRUCE JOSTEN, super lobbyists who helped orchestrate the Wall Street/Main Street coalition to sell the deal to Congress: Spotted sucking down martinis in an undisclosed location, dreading December 2012 when they will have to do it all again.

SORKIN/KERNAN/QUICK, CNBC Squawk team: Not really sure what it is they were talking about before Washington went crazy. Something to do with earnings and currencies and markets. Whatever.

JOHN BOEHNER: Playing Augusta. Smoking. Not coming back. May caddy for Tiger.

PAUL RYAN: Rocking out at a Filter concert. (hat/tip: Javers)

M.M. - Spotted wandering around Manhattan drooling, talking about monkeys and attempting to string a few words together until he gavels out for Summer on Aug. 12th.

EAMON JAVERS, crack CNBC reporter: Headed to the airport to catch a flight to Minnesota to enjoy the end of a lakeside vacation with the wife and kids who had gone ahead without him.

That last one was real. Some others may have been as well. We’ll never tell. Let us know what you are doing with your post-debt ceiling freedom: bwhite@politico.com.

GOOD WEDNESDAY MORNING - M.M. has decided to open a business in which he will randomly assign ratings to people and things and demand large payments in return. Even if we consistently get things wrong we expect to make huge money and freak everyone out on a regular basis. First rating: Jon Corzine goes on Credit Watch Audacious (see below.)

DRIVING THE DAY - Critical data point out this morning is ISM services index, which covers the bulk of the economy. Figure expected to tick up slightly from 53.3 in June. If it disappoints as much as the manufacturing number did... well, that would be what seasoned market pros call “bad.” ... It would also make the Pollyanna stuff above look kind of lame ... ADP jobs report out this morning but it has diverged so much from BLS lately that it is essentially meaningless.

A day before his birthday, President Obama is off to Chicago for DNC fundraising action ... Capitol Hill is a ghost town and hearings are getting cancelled by the score (including Thursday’s Richard Cordray CFPB nomination hearing). But as of last night Senate Banking subcommittees still had a pair of hearings on the docket for today including one in the morning on housing finance and one in the afternoon on debt financing.

SUPER COMMITTEE/SUPER LOBBYING - POLITICO’s Anna Palmer: “K Street wasted little time putting clients on notice about the next phase of the debt ceiling debate with a simple message: Nobody is safe from the super committee. Lobby shops say a much-broader-than-expected range of budget cuts and tax provisions could be in play ... And although the defense and health care industries have the most to lose from the way the debt ceiling bill is set up, that doesn’t mean everyone else can sit on the sidelines, K Street warns. ...

“Several lobbyists said they expect companies and industry groups to put a full-court press on Capitol Hill engaging grass roots, advertising and old-fashioned, shoe-leather lobbying to try to minimize the severity of the cuts. How much influence K Street can have on the process is still unclear.” http://bit.ly/ogpU6q

EUROPEAN CRISIS RETURNS TO FORE - FT’s Richard Milne in London, Victor Mallet in Madrid and Michael Mackenzie in New York in the page one splash: “Investors worldwide sold out of equities amid widespread worries of stalling global growth and renewed eurozone tension. Bond yields in Germany and US fell to new lows this year, while UK gilts yields were at a record low as Italian and Spanish 10-year government bond yields climbed decisively above 6 per cent to euro-era highs. ...

“Spanish and Italian politicians rushed to formulate a fresh response to the debt crisis engulfing the two countries as their borrowing costs hit euro-era highs ... The premium France pays to borrow over Germany also hit a euro-era high of 75 basis points. Analysts said it was difficult to see what could stop Spanish and Italian rates continuing to climb, particularly in light summer trading.” http://on.ft.com/pPyhm4

CORZINE THE INDISPENSIBLE - In one of the more audacious prospectuses in recent memory, Reuters Lauren Tara LaCapra reports: “New Jersey may have turned its back on Jon Corzine, but MF Global Holdings bond investors needed some assurance that the former governor will stick around in his current role as head of the brokerage. Corzine ... is important enough to MF Global's future that the company's bond offering on Tuesday included an unusual clause: Investors will get an extra percentage point of interest if he's appointed to a federal position [i.e. Treasury Secretary] by the U.S. president by July 1, 2013.”

M.M. WONDERS - Can a bond deal from Roger Altman’s Evercore Partners with a similar key-man provision be far behind?

QUOTE OF THE DAY - Comes from the truly indispensible Martin Wolf in a Yahoo! Finance appearance: "If the rating agencies are ever helpful ... it's in bringing information on securities that are difficult to evaluate on your own. U.S. Treasuries are the best understood securities in the world ... the ratings agencies ADD ZERO to one's knowledge of the U.S. treasury market." http://yhoo.it/pgdJ19

CURRENT S&P ODDS - Insiders now put odds of S&P dropping the U.S. to double-A at 60-40 in favor of a downgrade. This is despite the fact that Moody’s and Fitch reaffirmed Uncle Sugar’s AAA rating albeit with caveats that downgrades could still come.

FIRST LOOK: NEW ANTI-AMAZON VIDEO - Bricks and mortar retailers have another Web video slamming Amazon for not collecting sales tax issue. http://bit.ly/ocCc1T

BACHUS PRESSES ON DERIVATIVES - House Financial Services Committee Chair Spencer Bachus wrote to Treasury Secretary Geithner arguing that there is “no indication” that international regulators are following the U.S. lead on derivatives reform, particularly the “swap push-out rule.” Full letter: http://politi.co/q79JLF

DEBT CEILING DENOUEMENT –

CARNEY VS. KRUGMAN - CNBC’s John Carney blogs: “I agree with Paul Krugman that the deal to raise the debt ceiling is a disaster. But it's time to start thinking beyond that debate. The economy is rapidly contracting. Every indicator is flashing red alert. After this week's debt ceiling deal, there's no way the government is going to be able to employ its spending power to stimulate the economy. ... So what's the next best option? Obviously a tax cut would help. ... So, come on, Paul. How about it? http://bit.ly/n39iBT

SENATE VOTE MAY NOT PROVE COSTLY - POLITICO’s Manu Raju: “It was once billed as a defining moment that threatened Senate careers: a vote to raise the federal borrowing limit ... But Tuesday’s Senate vote revealed that it’s not that cut and dry. Republicans who earlier this year hoped Senate Democrats would be forced to carry the water ... were left without much of a political bludgeon after Tuesday’s vote. And politically vulnerable Democrats breathed a sigh of relief at the bipartisan 74-26 Senate vote. In the end, the final deal may have neutralized both parties’ ability to seize on the vote to attack vulnerable senators whose fate will determine whether Republicans win back control of the Senate in 2012.” http://bit.ly/paZ4du

NEW TAXES NEEDED - WP’s Ezra Klein: “There are now two sides in the American tax debate: the Republican Party, which refuses to have a serious conversation about taxes, and the Democratic Party, which . . . refuses to have a serious conversation about taxes. ... We cannot fund anything close to the government’s commitments if we don’t raise taxes, or if we let only the Bush tax cuts for income over $250,000 expire. And that’s true even if we make deep cuts across all categories of federal spending. ...

“The proof is in the plans. The Simpson-Bowles commission called for almost $2 trillion in new revenue over the next 10 years. ...The Rivlin-Domenici commission’s plan would have raised even more money by adding a value-added tax on top of its tax reform proposal, and it won the backing of the panel’s Republicans” http://wapo.st/qCtF5V

TRIPLE-A MEANS LITTLE TO COMPANIES - NYT’s Eric “P-Flash” DASH: “Scores of big corporations have lost their AAA status in recent years ... The borrowing costs of companies with AAA ratings and those one level below are not that far apart. Investors, in other words, do not see much difference in quality. ‘It’s like you are going from a Rolls-Royce to a Mercedes — not from a Rolls-Royce to a Yugo,’ said Chris Orndorff, a senior portfolio manager for the bond giant Western Asset Management. ‘That’s nothing to be ashamed of.’ More and more, in fact, companies have found that a AAA credit rating is not something worth aspiring to if a more conservative approach means lower profits. Today, markets often render credit judgments before the rating agencies can take out their pens, so a downgrade has a less noticeable effect.” http://nyti.ms/o40BDW

FIERY DEBATE AHEAD - WSJ’s Naftali Bendavid and Carol E. Lee: “A fiery debate is likely over the next step, the bipartisan panel, and how much of its $1.5 trillion in deficit reductions will come from tax increases and how much from cuts in safety-net programs. Meanwhile, Democrats in particular were eager to move beyond the debt-limit fight and tackle the issue of jobs, which they consider friendlier political turf. Mr. Obama signed the bill in private but used his public comments to try to shift the focus to the economy. ...

“Mr. Obama called on Congress to extend unemployment-insurance benefits and a payroll-tax credit for employees. He also urged lawmakers to approve a patent overhaul, free-trade deals and an infrastructure-funding bank. ... The White House hopes lawmakers will return to Washington in early September having heard an earful from voters about jobs and the economy.” http://on.wsj.com/oTfKOh

ALSO FOR YOUR RADAR –

MARKET MADNESS - WSJ’s Tom Lauricella and Charles Forelle on pg. A1: “Concerns that have been building for days erupted into a selloff that began in Asia, gathered steam in Europe and culminated in a sharp, late-day drop in New York. As the dust settled from the acrimonious debate in Washington over the debt ceiling, investors turned their attention to mounting evidence that the global economy is weakening. ... U.S. stocks fell for the eighth straight day, the longest stretch of declines since the 2008 financial crisis. Several measures fell into negative territory for 2011. The Dow Jones Industrial Average dropped below 12000, plunging 265.87 points, or 2.2%, to 11866.62. In its eight-day decline, the blue-chip index is down 6.7%. ” http://on.wsj.com/pR2jMi

MEET THE WALL STREET SHERRIFF - William D. Cohan writes in FORTUNE on Preet Bharara, the 42-year-old U.S. attorney for the Southern District of New York: “While his crackdown on insider trading has been his highest-profile pelt, Bharara has been on a tear across all aspects of the criminal justice system. Yes, he explained to journalists, his office had charged 49 defendants with insider trading in the 21 months since Rajaratnam had been arrested, and had won guilty pleas or convictions for nearly every one. But he also spent several minutes ticking through a laundry list of victories unrelated to Wall Street, from the convictions of Times Square bomber Faisel Shahzad and multiple corrupt New York politicians to accused arms trafficker Victor Bout, as well as indictments of several online gambling companies -- and much, much more. http://bit.ly/qytJgj

ICYMI: MARGIN BILL - In all the debt ceiling insanity, M.M. missed the introduction of an end-users margin bill by Reps. Michael Grimm (R-N.Y.), Austin Scott (R-Ga.), Bill Owens (D-N.Y.) and Gary Peters (D-Mich). The bill, H.R. 2862, says you qualify for the clearing exemption then regulators can’t impose a margin requirement. House Ag. Chairman Frank Lucas (R-Okla.): “This bill demonstrates bipartisan support for ensuring Dodd-Frank doesn’t impose undue economic harm. ... Congress never intended for end-users to be subject to margin because it needlessly ties up cash that should be at work in our economy.”